In the face of global economic uncertainty, the Government’s May 2009 Budget has pinned its hopes of economic recovery on increased infrastructure spending to help support jobs. Wayne Swan’s second budget has maintained his promise to increase the age pension and to proceed with individual tax cuts.
The budget includes a number of changes to superannuation, taxation and Government pension benefits.
Superannuation
Reduction of concessional contribution cap from 1 July 2009
The Government will reduce the concessional contributions cap to $25,000 per annum (indexed), with effect from 1 July 2009. Concessional contributions include Superannuation Guarantee Contributions (SGC), salary sacrifice and personal (i.e. before tax) deductible contributions.
The transitional concessional contributions cap has also been halved to $50,000 per annum (indexed) with effect from 1 July 2009. Transitional arrangements cease at 30 June 2012.
The annual cap on non-concessional contributions remains at $150,000 per annum for the financial year. Non-concessional contributions are typically personal after tax contributions and spouse contributions.
Our Comment
- Next financial year’s cap reduction means employees will need to review their salary sacrifice arrangements and self-employed people will need to review their personal deductible super contributions and consider contributing more this financial year.
- The non-concessional contributions cap is essentially unaffected, remaining at $150,000. There has also been no change to the bring forward rule, which will be capped at $450,000 for 2009-2010. The bring forward rule allows for 3 years worth of contributions to be made in 1 year.
- The Transition to Retirement (TTR) strategy remains unaffected other than the amount that can be salary sacrificed tax effectively into super.
- The concessional contribution cap applies to all concessional contributions. For example, a high income earning employee under age 50 with SG contributions may only be able to tax effectively salary sacrifice $11,255 from 1 July 2009.
Temporary reduction of the Government Co-contribution from 1 July 2009 to 30 June 2014
The Government will temporarily reduce the matching rate and maximum co-contribution that is payable on an individual's eligible superannuation contributions up to $1,000, with effect from 1 July 2009.
Under this measure, the matching rate and corresponding reduction will be:
2009/10 |
2010/11 |
2011/12 |
2012/13 |
2013/14 |
2014/15 |
|
Max Co-cont |
$1,000 |
$1,000 |
$1,000 |
$1,250 |
$1,250 |
$1,500 |
Our Comment
- The co-contribution is still an extremely attractive scheme despite the reduction of the Government's matching rate.
- No change was announced to the lower and upper income thresholds for co-contribution eligibility. The 2008-2009 shade out threshold is $30,342 with no co-contribution payable if total income exceeds $60,342. The indexed thresholds are yet to be set for the 2009-2010 year.
Extension of 50% minimum income stream draw down relief from 1 July 2009
The Government will halve the minimum payment amounts for account-based pensions for 2009-2010. Reducing the minimum payment amounts for account-based pensions will assist pension account balances to recover from capital losses from the global recession.
This measure extends the pension drawdown relief provided by the Government for 2008-2009.
The minimum annual income payment for an account-based pension is calculated as a minimum percentage of the account balance as follows:
Age |
Minimal Annual Payment |
Minimum Annual Payment for 2009/10 as per Govt announcement |
Under 65 |
4% |
2% |
65 - 74 |
5% |
2.5% |
75 - 79 |
6% |
3% |
80 - 84 |
7% |
3.5% |
85 - 89 |
9% |
4.5% |
90 - 94 |
11% |
5.5% |
95 and over |
14% |
7% |
Note: These limits are based on the pensioner’s age at the commencement of the pension and at the start of each subsequent financial year.
Taxation
Announced tax cuts from 1 July 2009
In accordance with the tax cuts announced in last year’s budget, the new personal income tax thresholds for the 2009-2010 year will be as follows:
Income Threshold |
Tax Rate |
$0 - $6,000 |
0% |
$6,001 - $35,000 |
15% |
$35,001 - $80,000 |
30% |
$80,001 - $180,000 |
38% |
$180,001 + |
45% |
The new personal tax rates differ from the tax rates for 2008-2009 in that the income threshold for the 30% tax rate has been increased from $34,000 to $35,000 and the 40% tax rate has been reduced to 38%.
Private Health Insurance Rebate from 1 July 2010
The Government has proposed to means test the 30% private health insurance rebate for middle to high income earners according to age. This is going to be achieved through introducing a three tier system with a parallel increase in the Medicare Levy Surcharge rate to penalise taxpayers who do not have eligible private health insurance.
Table of proposed change:
Current surcharge thresholds (projected 2010/11) |
Tier 1 |
Tier 2 |
Tier 3 |
|
| Singles | $0 - $75,000 |
$75,001 - $90,000 |
$90,001 - $120,000 |
$120,001+ |
| Families | $0 - $150,000 |
150,001 - $180,000 |
$180,001 - $240,000 |
$240,001+ |
| Medicare Levy Surcharge | nil |
1.00% |
1.25% |
1.5% |
| Private Health Insurance Rebate: | ||||
| Less than 65 years | 30% |
20% |
10% |
nil |
| 65 to 69 years | 35% |
25% |
15% |
nil |
| 70 years or over | 40% |
30% |
20% |
nil |
The definition of income for this purpose will be same as the definition used for the Medicare Levy Surcharge which includes: taxable income, salary sacrifice super, personal deductible super contributions, net investment losses and reportable fringe benefits.
Changes to income tax exemption for income earned by Australians working overseas from 1 July 2009
From 1 July 2009 foreign employment income derived by certain Australians working overseas for a continuous period of 91 days or more will become taxable in Australia. To avoid double taxation, taxpayers will be entitled to a foreign income tax credit for any foreign tax paid.
Currently, foreign employment income derived by Australians working overseas for a continuous period of 91 days or more is exempt from tax in Australia. Importantly, this exemption will continue to apply to income earned as an aid worker, a charitable worker, under certain types of Government employment or on projects that are in the national interest.
Social Security
Age pension age to gradually increase to age 67 from 1 July 2017
The qualifying age for the Age Pension and the Commonwealth Seniors Health Card for men and women will increase to 67 years of age from July 2023. The qualifying age will begin to increase from July 2017, by six months every two years.
From |
New Age Pension Age |
Affects People Born |
1 July 2017 |
65 years 6 months |
1 Jul 1952 - 31 Dec 1953 |
1 July 2019 |
66 |
1 Jan 1954 - 30 Jun 1955 |
1 July 2021 |
66 years 6 months |
1 July 1955 - 31 Dec 1956 |
1 July 2023 |
67 |
1 Jan 1957 - onwards |
Increase in Government support pension amount from 20 September 2009
From 20 September 2009 the base pension and the pension supplement will be increased by -
- $32.49 per week for single pensioners on the full rate of pension; and
- $10.14 per week (combined) for couple pensioners on the full rate of pension.
Increase in pension taper rate from 20 September 2009
From 20 September 2009 the income test taper will increase from 40 to 50 cents in the dollar for a single pensioner and from 20 to 25 cents in the dollar for each member of a couple above the allowable income free thresholds. This threshold is currently $138 per fortnight for single pensioners and $240 per fortnight for pensioner couples (combined).
Existing part pensioners affected by the income test changes will not have their entitlements reduced by this change and they will receive an increase of $10.14 per week for singles or couples combined.
The additional income free area available for those pensioners with children will be abolished to align the pension income test with the allowance and family payments income tests.
Age pensioners and service pensioners will have employment income assessed fortnightly, with only half of the first $500 of fortnightly employment income to be counted in assessing their pension entitlement.
Paid Parental Leave from 1 January 2011
A Government funded Paid Parental Leave scheme will be introduced. The parental leave payment will be equal to the federal minimum wage (currently $543.78 per week), and can be for up to 18 weeks.
The primary carer must have earned less than $150,000 (income test yet to be defined) for the financial year prior to the child’s birth or adoption, and have satisfied a work test. The work test requires the person to have worked at least 330 hours in the preceding 10 months, which equates to one full-time day per week. They must also have worked continuously for 10 out of the 13 months preceding the birth or adoption; therefore the work test cannot be satisfied by only working full-time for two months prior to the birth of a child.
The Baby Bonus will not be payable if claiming Paid Parental Leave. Neither will other family assistance payments, such as Family Tax Benefit Part B, dependent spouse, child-housekeeper and housekeeper tax offsets, for the period of payment of the Paid Parental Leave. In the case of multiple births, the Baby Bonus would still be payable for the second child.
The payment will form part of the person’s taxable income, and can be transferred to another caregiver if the primary carer returns to work.
Pension Bonus Scheme closed to new entrants from 20 September 2009
The Pension Bonus Scheme will be closed to new entrants. An income test concession will be introduced instead. Clients registered prior to closure will continue accruing entitlements as previously.
To compensate for the closure of this measure, the Government will introduce a new pension income test concession for people of Age Pension age. The concession will mean that only 50% of the first $500 of employment income per fortnight will be counted for income test purposes. At a 50 cent taper rate, this concession equates to a maximum increase in age pension entitlement of $3,250 pa (single or couple combined).
New carer supplement - first payment is to be made by 30 June 2009 with subsequent payments from 1 July 2010
A $600 pa carer supplement will be payable to eligible carers. All Carer Payment recipients will receive $600 pa. Carer Allowance recipients will receive $600 pa for each person they are caring for. Where a person receives both the Carer Payment and the Carer Allowance, they will be entitled to both payments. The payment will be non-taxable.
Commonwealth Seniors Health Card (CSHC) – income test
From 1 July 2009 the definition of Adjusted Taxable Income used for CSHC will include:
- Taxable Income
- Fringe Benefit
- Target foreign income
- Net investment losses
- Salary sacrifice super contributions
- Personal deductible super contributions.
Reform of family payments from 1 July 2009
From 1 July 2009 the Family Tax Benefit Part A (FTB-A) payment rates will be indexed by the Consumer Price Index (CPI) consistent with Family Tax Benefit Part B and the Baby Bonus.
The upper income threshold for FTB-A, FTB-B, dependency tax offsets and the Baby Bonus will remain at its current level until July 2012. These thresholds would ordinarily be indexed by CPI.
The following upper thresholds will remain:
Benefit Type |
Income purpose |
Cut off threshold |
Family Tax Benefit Part B |
Income of primary income earner |
$150,000 |
Dependency tax offset |
Income of taxpayer claiming the offset |
$150,000 |
Baby Bonus |
Combined family income in the six months following the birth of the child |
$75,000 |
Family Tax Benefit Part A |
Combined family income before losing entitlement |
$94,316 (plus $3,796 for each additional child) |
Extension to the First Home Owners Boost
The Government will extend the First Home Owners boost for another six months. The following table summarises the extension of the First Home Owner grant:
Contract date for purchase (inclusive) |
First Home Owner grant for established home |
First Home Owner grant for new home |
1 July 2009 – 30 September 2009 |
$14,000 |
$21,000 |
1 October 2009 – 31 December 2009 |
$10,500 |
$14,000 |
After 1 January 2010 |
$7,000 |
$7,000 |
If you would like to discuss any matter relating to the Federal Government Budget or any other financial matter, please contact us on 13000 IPLAN (1300 047 526)
